Fraudulent Transfers Series: Obtaining an Injunction To Stop Further Transfers During Litigation

The Texas Uniform Fraudulent Transfer Act allows injunctive relief to proceed against transferees in order to block the transferee from making further transfers of the assets. [1]Tanguy v. Laux, 259 S.W.3d 851, 859 (Tex. App. – Houston [1st Dist.] 2008, no pet.) .  In particular, TUFTA states that . . . subject to applicable principles of equity and in accordance with applicable rules of civil procedure, TUFTA allows for the following remedies:

(A)      an injunction against further disposition by the debtor or a transferee or both of the asset transferred or of other property;

(B)       appointment of a receiver to take charge of the asset transferred or of other property of the transferee; or

(C)       any other relief the circumstances may require. [2] See §24.008(a)(3)(A)-(C)

In Tanguy v. Laux, the First Court of Appeals made clear that one seeking an injunction did not have to have a lien on the real property against which the injunction was sought under TUFTA. [3]Id at 859. The Court’s holding shows that a creditor is not required to have lien on property, in order to pursue a claim against the property for having been fraudulently transferred pursuant to TUFTA. [4] See also Texas Kidney, Inc. v. ASD Specialty Healthcare, No. 14-13-00106-CV, 2014 WL3002425 (Tex. App – Houston [14th Dist.] July 1, 2014, no pet.) (“Texas Kidney”) .

In Texas Kidney the Plaintiff was ASD Specialty Healthcare, (“ASD”) which sold medications to Texas Kidney, Inc. or “TKI”, a dialysis center.  TKI failed to pay for $405,909.73 in medications sold to TKI.  As a result, ASD sued TKI for the debt. [5] Id. at 1-2.

TKI sold the dialysis center for $3 million, but still did not pay ASD.  When ASD’s counsel (Cersonsky, Rosen & Garcia lawyers M.H. Cersonsky and Marianne G. Robak) learned of the sale and obtained evidence of the transferees who received TKI’s sales proceeds, the petition was amended to include the transferees of TKI who recieved over $1.3 million, e.g. (a) Ahmed Rabie and Sana Rabie approximately $800,000.000 used to buy a home which they declared to be their homestead; and (b) Ahmed and Sana Rabie $500,000.000 used to purchase a certificate of deposit. [6] Id. at 5-6.

After a two-day evidentiary hearing, the trial court issued an injunction against the transferees, Ahmed Rabie and Sana Rabie, enjoining them from selling, encumbering, or disposing of any interest in the real property in question and from withdrawing funds or otherwise disbursing the balance left in the certificate of deposit. [7] Id. at 2.  TKI and the Rabies appealed. However, the Court of Appeals affirmed the trial court’s injunction against the transferees because the evidence showed that fraudulently transferred funds were used to purchase the alleged homestead. [8]Id. at 5-6.  This clearly shows TUFTA reaches transferees and the assets transferred to them.

Obtaining an injunction is a powerful tool provided to creditors by way of TUFTA that is often not used in litigation. However, when an injunction is obtained in a TUFTA case, it can lead to a favorable outcome in collecting a debt.


1 Tanguy v. Laux, 259 S.W.3d 851, 859 (Tex. App. – Houston [1st Dist.] 2008, no pet.)
2 See §24.008(a)(3)(A)-(C)
3 Id at 859.
4 See also Texas Kidney, Inc. v. ASD Specialty Healthcare, No. 14-13-00106-CV, 2014 WL3002425 (Tex. App – Houston [14th Dist.] July 1, 2014, no pet.) (“Texas Kidney”)
5 Id. at 1-2.
6 Id. at 5-6.
7 Id. at 2.
8 Id. at 5-6.

The Debtor Disputed Your Debt, Now What?

Under Section 1692g of the Fair Debt Collection Practices Act, if a consumer disputes a debt within 30 days of the first Miranda warning[1], the debt collector must cease collection efforts until the debt collector “obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor.” 15 U.S.C.A. § 1692g (West). The statute seems straight forward, but with the advice  on the internet (good, bad or indifferent), it has become more complicated. Debtors are now retrieving form letters and sending those off in response to demand letters in efforts to trip up debt collectors. Many times, those expansive letters request anything from the attorney employment agreements with their clients to the law firm’s insurance. The question is, does the law firm have to respond with every document request in order to have properly verified the debt under Section 1692g of the Fair Debt Collection Practices Act?

Fortunately, the courts have answered this question “no.” The courts have developed two tests. First, the traditional and more lenient test still applied by many courts was originally expounded in Chaudhry v. Gallerizzo, 174 F.3d 394, 406 (4th Cir. 1999). It required “nothing more than the debt collector confirming in writing that the amount being demanded is what the creditor is claiming is owed.” Haddad v. Alexander, Zelmanski, Danner & Fioritto, PLLC, 758 F.3d 777 (6th Cir. 2014) (citing Chaudhry 174 F.3d at 406 (4th Cir. 1999); see also, Clark v. Capital Credit & Collection Servs., 460 F.3d 1162 (9th Cir. 2006)). A second test was held in Haddad, where the the Sixth Circuit stated that sufficient “verification” requires the debt collector to “provide the consumer with notice of how and when the debt was originally incurred or other sufficient notice from which the consumer could sufficiently dispute the payment obligation.” Haddad, 758 F.3d at 786.

So what does this mean for a debt collector when responding to these letters? Generally, if the debt collector can give the basis for the original charge, an accounting of the debt and the name of the original creditor, the response to the verification will be sufficient. See e.g. Ritter v. Cohen & Slamowitz, LLP, 118 F.Supp.3d 497, 502, 504 (E.D.N.Y. 2015); Stoneheart v. Rosenthal, No: 01-CV-651, 2001 WL 910771, at *23 (S.D.N.Y. Aug, 13, 2001); and Hawkins-El v. First American Funding, 891 F.Supp. 2d 402 (E.D.N.Y. 2012); Hawkins-El v. First Am. Funding, LLC, 529 Fed.Appx. 45 (2d Cir. 2013) (affirming District Court’s opinion). However, in one instance, a court found that a verification contained internal inconsistencies, and was therefore insufficient. See Mack v. Progressive Financial Servs., Inc., No. 4:13cv544, 2015 WL 123742, at *1 (E.D. Tex. Jan. 8, 2015). Thus, it is important to make sure that the information given is accurate and consistent, otherwise the verification may be deemed insufficient, and all subsequent collection efforts may be in violation of the FDCPA.

Once the debt is verified, the debtors may continue their collection attempts, as stated in Hawkins-El “Plaintiff’s debt already had been verified for purposes of the FDCPA. Plaintiff cannot forestall collection efforts by repeating the same unsubstantiated assertions and thereby contend that the debt is ‘disputed.’ If Plaintiff were permitted to do so, debtors would be able to prevent collection permanently by sending letters, regardless of their merit, stating that the debt is in dispute. Such a result is untenable as it would make debts effectively uncollectible.” Hawkins-El, 891 F.Supp.2d at 410.

[1]See 15 U.S.C.A. § 1962g (a)(4) requiring “a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector.”